What does insider trading really mean?

“If you look at section 78 of the Financial Markets Act, it basically criminalises the offence of insider trading, so there are penalties that can be imposed on a person who’s found guilty of insider trading,” Solly Keetse, head of the department of market abuse at the Financial Services Board told CNBC Africa on Friday.

This follows after a report was released on Thursday, by telecommunications provider, Telkom, announcing the suspension of their Chief Financial Officer (CFO), Jacques Schindehutte.

Telkom’s board of directors stated that the suspension relates to allegations of personal misconduct levelled against Schindehutte, which came to their attention through a whistle blower. However, reports suggest that the CFO was involved in insider trading.

Insider trading, the buying or selling of a security by someone that has access to non-public information about the security, is declared illegal by South African law and the perpetrator could face serious sanctions.

The process usually comprises of a tip off to the South African non-banking sector regulator, the Financial Services Board (FSB), which then perform an investigation into the matter.

“We get anonymous tip offs through the FSB, the JSE [Johannesburg Stock Exchange]and other mediums as well,” said Keetse.

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With insider trading cases, the JSE is usually the first entity to alert the FSB as they have sophisticated surveillance systems that can pick up market abuse quite efficiently.

“They’ve got sophisticated IT [informational technology] systems for surveillance of the markets for market integrity and to make sure that trades in the market take place in an orderly fashion,” he explained.

The FSB, on the other hand, have the capacity to perform thorough investigations of market abuse cases. Once complete, the directorate of the market abuse committee decides on whether the person in question is guilty or not and what kind of sanction to place.

“The perpetrator can be tried on the basis of a criminal function, a civil sanction or an administrative sanction. Over the years, what have worked very well for the FSB are administrative sanctions, where we can impose penalties of up to 24 million rand,” added Keetse.